Deposits into the portfolio

Its been a busy relaunch for my blog and almost all of it has been focused on real estate. Where I stand with my rental property and how I calculate rental property yield. I've had to play catch up a bit with you as I have talked about stock and bond investing for over 2 years but nothing about real estate beyond REITs. I have a lot more to say but this isn't only a rental income blog.

My past public portfolios had weekly deposits. I felt that was the best way for new people to stay focused with their portfolio. Its a psychological hook that I had found useful in the past. I'm at a point now though where the dividends coming in are high enough that I am getting all the positive reinforcement I need so I don't need the weekly deposit model.


$250 Investing Deposit every 2 weeks.
This is how I will be doing my deposits. I get paid from my day job every two weeks on a Friday. The following Monday I will have $250 deposited into my investing account. Its an automatic transfer so there is no thinking about it. I have it right after payday so that I pay myself first. I've found that if I pay bills first then I don't seem to have enough at the end. But surprisingly the reverse is not the same. If I put money towards me first I find I still pay my bills. Its all those discretionary luxuries that get cut. I'm looking at you venti iced white chocolate mocha from Starbucks!


$250 Discretionary Deposit every 2 weeks.
I will have an additional $250 a paycheck be a discretionary deposit. The limit is fixed and will occur each time but where it goes won't be decided until deposit day. Perhaps savings, paying off the mortgage early, or into more stocks and bonds. While investing is my main focus and main wealth builder, I want some flexibility in meeting the changing markets and events in my life.


Excess Miscellaneous Deposit every 2 weeks.
There is the possibility of a third deposit into my portfolio per paycheck. It will depend on my expenses at the time. Its one thing to sit back and have a planned budget but life is an entirely different matter.  Gifts, cars breaking down, health costs. While I do want to pay myself first I cannot ignore that things will happen. So from time to time I will try to get even more deposited into the portfolio.

The first deposit is on its way. The discretionary deposit is going to starting an online savings account. I'll talk about that in its own entry on why I will have an online savings account separate from my normal one that my paycheck is deposited into.


Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Calculating Rental property yield.

As I make new cash deposits into my portfolio, I have to determine where the money is going to go to. How will it best achieve my goal of increase income? Do I buy more stock or pay off my mortgage early?
I have to have a way to compare different asset classes with each other. So to compare the income from real estate I frame it in terms of dividend yield.
There seems to be many ways to look at your rental income so I will share with you guys how I view and calculate it. This is for comparison's sake across different asset classes, this is not for tax purposes.


Income
A dividend paying stock takes in revenue for its product or service it sells. Then it applies its costs, and from its profit it pays its investors a dividend. The company announces the dividend amount to the world and its not open for debate. As far as receiving the dividend, the investor doesn't have to worry about these costs, they just get paid.

As a landlord our rent is revenue, it is not our profit so we cannot just use that to calculate our yield. If we want to compare our real estate income as close as possible to a dividend, we have a cost of doing business that must be paid before we can have our profit.

What's more is that our costs are not static. Some months you will replace your furnace taking 2 months or more of rent. You could go a year without having any repairs. Thats why I set aside and estimate 10% for repairs and vacancy. Its not exact but we need something to base our calculations off of.
I use my net rent as shown on the spreadsheet for calculating yield.
But wait its negative. We can't calculate our yield on a negative income, that's a loss.

Almost all of my costs are flexible as to if they occur and in some cases by how much. However they will have a chance to occur for as long as I own the property so I need to plan for them. Well all but one of them. The mortgage.
Once that is paid off it will never come back. Its a known, quantified cost that can be removed. Once we remove that we can get our long term income estimate. This also makes it closer to what a dividend would be.
That's why I use Net Rent with no mortgage as my long term calculated income for yield purposes.


Net Worth
The other half of the yield equation is how much is the property worth that I am calculating my yield off of. Real estate is very illiquid. One property doesn't have a million points of view a day setting the price on the active market.
I could use the current balance of the property. How much profit I have tied up into the property. If we are to look at capital gains of a dividend paying stock as being tied up into a position that could be sold and deployed in another stock this makes sense. However if I am looking at my net rent at a future point in time then to be fair I need to look at my property's net worth in the same way. Additionally, I plan to keep this property forever barring any local economic disasters so at some point I will have the mortgage paid off. Since this portfolio is to get me retired from my day job, this plan fits in with my strategy very nicely.
The estimated value I have as the average between Zillow.com, Realestate.com, Chase.com, Trulia.com and what my local county charges bases my property taxes on.


So what is my yield?
With all that said I have two yields listed.
The gross value yield is my rent before costs / estimated value.
The net value yield is my net rent / estimated value.
Why would I use both? Because some of these costs are unknown over the course of the year, I use these as the highest and lowest estimates. The true yield will be somewhere in between.



Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Real Estate Portfolio

Back in 2007 I wanted to buy a home. I had two choices that I could afford. One was a house. A liquor store was three buildings away from it on a street corner and it had bullet holes in its sign. The house did not have a garage but a large carport. I own an Acura Integra which is always on the Top 10 most stolen cars of America. I've had it attempted to be broken into twice so I pretty much would have to write off the car. The price for the house was a steal and keep in mind this was 2007. Everyone was flipping houses. It was the thing to do back then. The other choice I had was a townhouse. Kind of small but it was well maintained and a good area located within close driving range of three very large employers. I decided what I would be happy to come home to and passed on the dream of flipping it for 100% profit in 5 years. 2008 came along and I was pleased with my choice.

I met my girlfriend and then later on moved in with her. She has a Saint Bernard and my HOA would not allow dogs so there was no choice in the matter. It did leave us with 1 house too many. I did my research and decided to rent it out and become a landlord.

I got myself a property manager to handle everything and let me tell you, it was a no brainer. Do you like the idea of getting a phone call at 1 A.M. in the middle of winter about a broken furnace? How about a renter that is two months later then skips town, want to deal with that? Yeah me neither. 10% a month of the rent is more then fair to make all the problems go away.

First up is the net worth of the unit. For the estimated value I use a combination of the value I pay property taxes on, Zillow.com, Trulia.com, Chase.com, and Realestate.com. The mortgage is what I still owe on the unit and as you can see its underwater, by a lot.
I have a Real Estate Cash Account which is a checking account where I pay repairs out of, make extra payments on the mortgage, and receive my rental income into.
The Real Estate Savings account is the savings account tied to that checking account. I keep $2,000 in there for any repairs. I have recently replaced the A/C and Furnace on it so do not expect any big repairs for at least a decade. But you never can be sure so I want that cushion so as not to need to sell any dividend stocks.

Now for the income part.  I collect $950 in rent a month.
-$95 (10%) is taken out for the property manager.
-$150 is what I have to pay for the HOA. Now that may seem like a lot but its a gated community of townhouses. They handle the roofing, siding of the buildings, trash pickup, landscaping, and an onsite security force. As with the property management fees, I'm willing to pay people to make problems and worries go away.
-$53.73 is what I pay for Renter's Insurance.
-$95 (10%) I set aside for vacancy months and repair. Let me tell you, you HAVE to prepare for these. They WILL come up.
-$745 for mortgage.

That leaves me with a -$200 loss every month. Not the greatest investment by far but its underwater -$15,000. I'm certainly not going to sell it. For now I will bide my time and let someone else buy me a house.


Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

My Portfolio

Now that I have discussed what my strategy is its time to go over what tools I have to work with to carry them out, i.e. my portfolio.

Most of this should look familiar to longtime readers. My original Model Portfolio was a real time, real money portfolio. I then switched over to a fake demo account for the Effort Portfolio, but I kept on funding and running my Model Portfolio. Sometimes with the same moves as I showed on the Effort Portfolio. Sometimes with things I didn't talk about. Now that I am running a progress blog of my own actions and progress... I am once again sharing a real account. Its not everything I am doing but in this account and the actions I talk about here, its real money.

Dividend growth stocks make up the majority of the positions. They are the solid companies that I expect to give me raises to my income over the coming years.

Business development companies are listed next. BDCs give out loans to small companies. As you can see their yield is quite high. This is a proxy for my small cap exposure. The dividend growth is quite low but they make up for it with a high yield. I plan to simulate income growth by being able to buy more shares quicker than the gains from the dividend growth stocks. I will be discussing more about BDCs in the future.

Real estate investment trusts also have a place in my portfolio. More investors are familiar with REITs then BDCs. They have higher yield than dividend growth stock but lower yield then BDCs. The flip side is they generally have higher growth rates then BDCs but lower than dividend growth companies. They strike a nice balance.

Our world runs on fossil fuels and that mean they have cash flow. Master Limited Partnerships (MLPS), and Royalty Land Trusts provide high yields but there are some nice energy corporations that pay good enough to be in my portfolios too.

Probably surprising to most of you is that I will have a precious metals position in my income portfolio. GLDI sells covered calls on the GLD share it owns. 8.4% yield is pretty juicy and it brings in diversification to help calm down the market highs and lows.

Though most dividend growth investors shy away from bonds, I like them and want them. Though they have no growth they do have diversification. Not only in share price movement but diversification of where their income comes from.

The last section is my real estate portfolio consisting of 1 townhouse. Yes I am a landlord. I will get more into that in the future.

In the next update I will get into future funding and overall basic plans for the portfolio.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Income Growth Investing: How I will make money in the financial markets

There are numerous ways to make money in the markets. Stock option trading, bonds, commodity trading, rental real estate, flipping houses, forex, bitcoins, precious metals. I'm convinced that if it exists or can be conceptualized, then somewhere some human has found a way to profit from it. Patent trolls have found a way to capitalize thought itself.
So what is my preferred way on making money in the financial markets?

There are two general types of assets out there.
1: Assets you can buy now and sell later for a profit.
2: Assets you can buy now and sell later for a profit that also pays you to hold them.
Given just this, it seems like owning #2 gives you an automatic advantage, or an edge over #1. The asset that gives income can still be sold for a profit if need be so really there are two strategies possible built into one. I see little reason to focus on non paying assets.

Both of these types of assets come with two problems.
1: You have to be able to figure out WHAT will increase in value in the future to be able to sell it for a profit.
2: You have to be able to figure out WHEN to sell your asset meeting your time horizon of when you will need your profit and if the asset has more upside in price to come or if it is going to drop and you lose unrealized gains. Our two listed assets have these problems because of "buy low sell high." However #2 has the added benefit of income. That is where my edge and strategy lies.

My goal is to generate enough monthly income to cover my monthly bills. If I can do that then I am never forced to sell my assets for profit to live off of. In fact if I am never forced to sell an asset, and my assets generate the income I am wanting, then I never want to sell them. I no longer have to worry about concern #2 in when I will sell if I do not plan to sell for a profit. Additionally I'm less worried about what will appreciate in value as much as what will give me a constant income stream so concern #1 is mitigated somewhat.

I am an Income Investor.

I have one last concern with planning and choosing my strategy. Inflation. It can slowly creep into a portfolio and our lifestyles and lower them. I am in my late 30s. I have another 25 years before traditional retirement. Assuming I live to be 90 I have 25 years of retirement. Thats 50 years of inflation that I have to worry about with my financial decisions today.

To combat inflation I want my income streams to increase every year by more then the inflation rate. Long term that is about 3% - 4%.

I am an Income Growth Investor.


Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Rebirth

Well that is that.

The Youtube channel has been ended. All the videos have been set to private except for the good-bye video. I won't link that video here, if any of you want to see it you can go see it. Some of you might be thinking "What now?"  In the video though, note that I said I am closing the Youtube channel. Nothing about this blog.

For the past two years I've spent time attempting to teach others what I know and at times that meant spending time and energy on things that didn't help me. The ETF Portfolio was a great example as I don't have an interest in equity ETFs nor running Permanent Portfolio. That's taken up a lot of my time. For those of you who have never made a youtube video.... each one can take an hour or more. To make the video, redo it if its of poor quality, wait for it to compile, upload it, wait for Youtube to compile. It was crazy.

Its now time to focus on my efforts instead of splitting the time and thats what I will do with this blog going forward. This will now become a progress blog detailing my own steps to becoming financially independent. What I am reading and thinking as well as the actual financial choices I am taking. No theoretical family, no imaginary portfolios that I have no interest in.

I could have started a new blog and perhaps a new online name. When I thought about that though it felt disingenuous.  Like I was trying to hide something or pretend the past didn't happen. It serves no purpose to you the reader because it gives less insight for you as to who I am and where I am coming from. It serves no purpose to me because our past actions and decisions are what makes us who we are. They are to be learned from, not ignored.

However, I've hidden my old posts. Not to hide anything of my past, I will still talk about and admit to my Enerplus (ERF) investment. But those blog posts were mostly placeholders to showcase a video. As I was looking at them without the context of the video that used to be there, they were not independent entries meriting anyone's time in reading them without a video explaining things.

Its a new fresh start and one I am rather happy about. I find it interesting how relieved I am now to have gotten rid of the Youtube channel. Like an anchor removed. Not that I will not be trying to help others. I will. Its a part of who I am. Just in a different way.



Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.